SAM FLEMING COMMENT: How to deliver better banking

Hailing the Post Office as a 'great British institution', Lord Mandelson yesterday declared he wants to see a full range of banking services on offer at its 11,500 branches.

The world's first 'Post Bank' was founded here in 1861, and the Business Secretary argues it's time for us to return to our roots.

His accompanying consultation paper, however, was striking in its woolliness. Feedback is requested, for example, on whether customers want our new Post Office bank to be 'trusted',' sustainable' and 'accessible'.

People's bank: Lord Mandelson wants a full range of banking on offer at all of the Post Office's 11,500 branches

And nowhere did it mention the key matter at hand, which is what
company will provide the financial services at the new 'People's Bank'.

It's clear the Royal Mail can't do banking by itself. It seems
to have enough trouble delivering letters. Instead, the Post Office
will partner up with a fully-fledged financial services player.

The reason we are not being consulted on this topic is the
winner of this coveted position is already a sure bet. It will be that
great British institution known as Bank of Ireland. The bank has
offered a limited range of services, such as savings accounts and the
occasional mortgage, via the Post Office since 2004.

Bank of Ireland has, in that short time, managed to soak up £8bn of deposits from Post Office customers.

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The Post Office is committed to this alliance until 2020, and as such, it is hard see how another firm could muscle in.

That's highly unfortunate. There is nothing wrong with
attracting foreign banks to the UK - indeed, we need all the
competition we can get after mega-mergers such as Lloyds-HBOS.

But Bank of Ireland is hardly in robust health. Like the rest
of the Irish banking sector, it has been crippled by a property
implosion that rivals the one we saw in Britain. In the first six
months of the year, its underlying losses nearly tripled to £885million.

It has been the beneficiary of a controversial blanket deposit
guarantee by the Irish government, as well as a recapitalisation plan.
It is planning to put £14.5billion of toxic loans into Dublin's National
Asset Management Agency.

This is hardly the kind of institution to restore the public's
faith in financial services, which Lord Mandelson declares as his
principal goal.

The Business Secretary needs to be more creative.

Why not get one of the UK's existing building societies involved
instead, or merge the Post Office's banking activities with the 'good'
Northern Rock assets?

Despite the Royal Mail's desperate need for extra revenue
streams, the government has not given these ideas any thought,
preferring to stick with an existing deal that delivers too many
benefits to Bank of Ireland and not enough to the UK taxpayer.

Indeed, once you strip away the rhetoric, this consultation amounts to a bag of empty words.

The document proposes that the all-new Post Bank could offer
current accounts to customers across the country, but Bank of Ireland
already has plans in place to do so.

Enjoying a plum position in the Post Office's vast branch
network has clearly been a boon to Bank of Ireland. But the key
question for Lord Mandelson is whether it is such great news for
consumers.

Hollow victory in EU

UK officials were yesterday declaring victory in the battle over European Union financial regulation.

Three authorities will be created to oversee the EU markets, but
none of them will be able to take decisions that impinge on national
budgets. This 'fiscal sovereignty' issue was a key concern for the UK
delegation.

What's more, the power to declare when a financial crisis has flared up has been removed from the European Commission - under France's dreaded Single Market Commissioner Michel Barnier - and
handed to the European Council, where Britain's weight will be more
keenly felt.

Yet in reality Britain remains worryingly marginalised in a debate of key importance to the City.

By focusing our political firepower on issues like 'fiscal
sovereignty' the UK has missed the bigger picture, which is its denuded
status in institutions that will wield massive sway.

For example, the new European Systemic Risk Board that will
monitor the markets for looming dangers will be dominated by European
Central Bank president Jean-Claude Trichet and other eurozone
officials.

And, as the latest grandstanding by Nicolas Sarkozy proves,
Gordon Brown's decision to push for an EU foreign policy post for
political neophyte Baroness Ashton has left us pitifully
under-represented on the European Commission.

Sarkozy has helpfully reminded us how determined some
Continental politicians are to chip away at London's status as a top
financial hub.

The evidence thus far is that the UK is doing a pitifully poor job of defending it.